Federal Reserve's Schmidt: Never underestimate the risks faced by inflation expectations

Golden Finance News reports that on April 1, the U.S. Federal Reserve’s Schmid on Tuesday warned that people should not assume that rising energy prices will only have a temporary impact on inflation. Even before the Iran war drove oil prices up, the inflation rate was already close to 3%, and the Federal Reserve’s progress toward its 2% inflation target had stalled. Schmid said, “I don’t think we can afford to be complacent about the risks facing inflation expectations.” He also noted that although most measures of long- and medium-term inflation expectations have remained stable, this does not bring him much comfort. “Our job now is to take the appropriate policy action to demonstrate these expectations.” Schmid did not clearly specify what specific policy steps he was referring to; however, last year he had twice voted against the Federal Reserve’s decision to cut interest rates. Last week, financial markets reflected investors increasingly believing that rising oil prices could force the Federal Reserve to raise interest rates later this year to prevent inflation. But this week, market views have shifted to the belief that the Federal Reserve will keep interest rates unchanged.